What Is a Vendor Invoice?

Commonly known as a purchase invoice, a vendor invoice is a document that requests payment for delivered goods or services. Basically, it’s an official demand from the vendor to clear the payment for goods that have already been delivered.

Vendor invoices are sent directly to the business once they have transported goods, so the purchaser can know how much is pending due and how soon they need to complete the payment.

Let’s take a vendor invoicing example; your business purchases office supplies like bottled water and disposable cutlery from the vendor on 25th April.

On the next day, 26th April, you receive a vendor invoice with Net 30 payment terms, demanding $900 for items you have already delivered to your location.

Therefore, you need to pay the due amount before 26th May. Otherwise, the vendor has the full right to charge you late fees once the 30-day period is completed.

What Information is on a Vendor Invoice?

A vendor invoice comprises some necessary information, as mentioned below.

Invoice Date

Add the invoice date so that the business knows when the vendor actually issued a new invoice. Mentioning the correct date also alleviates the invoice tracking for both the business and the vendor. You can maintain the exact record of invoices and quickly find how many are paid and unpaid.

Invoice Number

Next comes the invoice number that you can find on the top part of a vendor invoice. This unique invoice number attached to a vendor invoice serves as a reference ID for business transactions. Also, it plays an important role when it comes to payment tracking. Plus, it helps businesses and vendors avoid confusion in case of multiple invoices.

Purchaser’s Details

A vendor invoice also comprises the purchaser’s details, such as full name, business address, and phone number of the concerned person. This is because it clarifies to whom an invoice is issued. Sometimes, vendors also include the department name or the individual who placed the order.

List of Products or Services

A vendor invoice also offers an itemized breakdown of the products or services that have been delivered. You can see a list of products and services along with their descriptions and rates. Following that, you will find the total invoice amount summed up. This clearly explains why the vendor is requesting payment.

Payment Terms

Lastly, you will also find payment terms such as Net 30, Net 60, or Net 90 in a vendor invoice. A payment term on a vendor invoice indicates how much time you have to complete the payment. If you receive a net 15 vendor invoice, then you have 15 days to pay the dues starting from the day you received the invoice.

10 Vendor Invoice Terms You Should Know

Vendors usually include any one of the following payment terms while creating a new invoice. Let’s check all of them.

1. PIA (Payment in Advance)

As the name suggests, you need to pay some portion of the payment made in advance when PIA is mentioned on a vendor invoice. For example, a vendor may ask for 25% payment in advance before transporting the goods or services. Vendors use PIA mostly when delivering large numbers of goods.

2. COD (Cash on Delivery)

Inclusion of the Cash on Delivery (COD) on a vendor invoice states that the payment can be made upon the delivery of the products or services. Here, the buyer is obligated to complete the payment immediately once the goods are delivered to their location. COD makes sure that the vendors are paid in a timely manner.

3. Terms of Sale

Vendors sometimes define terms of sale as the payment terms, informing the purchaser about their financial obligations. Adding terms of sale to a vendor invoice means the vendor expects the purchaser to complete the payment as soon as they are done with the product delivery.

4. EOM (End of Month)

Whenever the EOM is described as a payment term in a vendor invoice, this means the buyer has a month-long time to cover the dues. It sets the due date according to when the invoice was issued rather than the delivery date of the goods or service. So, the buyer needs to pay the due amount before the end of the month.

5. Net 30/60/90

Net payment terms, such as net 30, 60, or 90, are commonly used among suppliers or vendors. As per the mentioned payment term, the due date is determined. For example, net 15 payment terms enable clients to make payments within 15 days. Once the due date is passed, the vendor may charge penalties.

6. 2/10 Net 30

2/10 Net 30 symbolizes a 2% discount if the purchaser clears the outstanding amount within the first 10 days. After 10 days, the buyer can still pay the money during the 30 days, but will miss out on discounts. Vendors add a 2/10 net 30 payment process in a bid to speed up the payment process.

7. MFI (Month Following Invoice)

MFI informs the business to process a payment by the 30th of the month, starting from the date the invoice is issued. It is a flexible payment term, allowing the purchaser enough time to review the items they have received and accordingly pay a vendor invoice. However, the purchaser should make sure the deadline has not passed, or else they may incur late charges.

8. Line of Credit

You might not often see a line of credit as a payment term because it poses a risk for vendors. However, vendors may use a line of credit if they have been associated with your business for a long time and have trust in you. A line of credit provides a flexible approach for businesses to pay on a monthly basis.

9. Recurring Invoice

Vendors may send you recurring invoices if you usually purchase the same things every month or year. Suppose if you purchase services that require renewal every month, then you may receive recurring invoices from vendors. It states that you need to fulfill the payment to continue using their service.

10. Due Upon Receipt

A vendor invoice carrying a due upon receipt as a payment term specifies that the payment needs to be completed the moment an invoice is received. Unlike Net D payment terms, they do not offer payment flexibility. So, the purchaser needs to dispatch the payment right away after receiving an invoice.

What are the Key Steps to Process a Vendor Invoice?

Vendor invoice processing demands the attention of your accounts payable team. It involves tracking unpaid invoices and verifying them before sending payments. Here is a detailed explanation of how it works.

1. Collect Vendor Invoices

Firstly, organize vendor invoices in one place, so that it will be easier for the accounting team to track them and consider them for further verification. You can utilize automation software like Moon Invoice to centralize your invoicing data instead of piling paper-based invoices in a shoebox. By doing so, your AP team won’t need extra time to conduct a manual search whenever vendors demand payments or raise concerns.

2. Review & Approve

Next, ask your accounts payable team to start vetting invoices by comparing them with internal records. They need to check if all the items listed in an invoice have been delivered by vendors. In case of missing items, you can contact vendors. By taking a closer look at vendor invoices, your AP team can make sure charges are correct and avoid duplicate payments. They need to double-check vendor invoices and approve only if they align with purchase orders.

3. Dispatch the Payment

Invoices that have gone through the lens of your accounting team and been approved can be considered for payment processing. You can request your accounting team or senior accountant to pay vendor invoices that have been approved by the AP team. Once the payment is done, mark the invoice as paid and update your accounting records.

The Benefits of Automated Vendor Invoice Processing

There are a multitude of benefits to using vendor invoicing processing in an automated way. Below are some of them.

1. Effortless invoice tracking

Automating the entire vendor invoice process means you neither need to conduct a manual search nor occupy office space with paper-based vendor invoices.

2. Reduced approval time

The automation in vendor invoice processing ensures crystal clear invoices that eliminate possible back-and-forth and allow the AP team to approve or reject an invoice.

3. No duplicate payments

Automated vendor invoicing method leaves no room for duplicate payments, ensuring you pay only for what’s delivered. As a result, it promotes lasting vendor relationships.

4. Real-time reporting

Embracing Automation in invoice processing also saves time in keeping accounting reports up-to-date. It works in real-time, so you no longer need to update records manually.

Final Thought on Vendor Invoices

Vendor invoices are formal requests made by vendors to get themselves paid. Upon receiving a vendor invoice, it’s the business’s responsibility to assess and pay the outstanding amount. Simultaneously, businesses also need to update their accounting records to keep an accurate track of paid and unpaid invoices.

Since now that you know the benefits of vendor invoices and the vendor invoicing process, you won’t have difficulties in paying vendor invoices. You can even make it easier by embracing state-of-the-art invoicing software like Moon Invoice.

You can manage unlimited invoices, approve them within minutes, and send timely payments to vendors. As a result, you will save time and establish strong relations with vendors. Use a 7-day free trial to explore more features.

FAQs